EconPapers    
Economics at your fingertips  
 

Stability Analysis of a High-Dimensional Macrodynamic Model of Real-Financial Interaction: A Cascade of Matrices Approach

Carl Chiarella, Peter Flaschel, Reiner Franke and Willi Semmler

No 123, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This paper analyzes a high-dimensional macrodynamic model of the real-financial interaction. Regarding the financial sector it focuses on the stock market dynamics, whilst for the real sector it details goods market disequilibrium and two Phillips curves for prices as well as wages. The central link between the two sectors is constituted by Tobin's (average) q. The integrated dynamics of the model constitute a seven-dimensional system of differential equations, the stability analysis of which is the main contribution of the paper. The analysis proceeds by constructing a cascade of stable matrices and thus demonstrating that the long-run equilibrium is locally stable if certain adjustments are sufficiently sluggish. Large values of some reaction parameters, on the other hand, can destabilize the economy, while a Hopf bifurcation analysis shows the potential for cyclical motion in such circumstances.

Keywords: real-financial interaction; higher-order local stability analysis; cascade of stable matrices; tobin's average q; wage-price dynamics; hopf bifurcation (search for similar items in EconPapers)
JEL-codes: E12 (search for similar items in EconPapers)
Date: 2002-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.finance.uts.edu.au/research/wpapers/wp123.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.finance.uts.edu.au:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uts:wpaper:123

Access Statistics for this paper

More papers in Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().

 
Page updated 2025-03-31
Handle: RePEc:uts:wpaper:123